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Red Hat Boosts Middleware Solutions - Analyst Blog

In a bid to expand in the business process management ("BPM")
solutions segment,
Red Hat Inc.
(
RHT
) recently acquired Polymita Technologies S.L.'s BPM technology.
The financial details of the deal were not disclosed.

The BPM technology will be integrated into Red Hat's JBoss
Enterprise Middleware segment. Red Hat has recently introduced BPM
into its JBoss Enterprise Business Rules Management System ("BRMS")
platform. With this acquisition, Red Hat would have a more
comprehensive product portfolio, which would help sales to its
existing client base and also garner new customers.

The acquired technology will also support Red Hat's cloud-based
solutions and the company expects to convert certain parts of the
software to open source, which can be easily integrated and
customized according to client needs. Red Hat's JBoss middleware
offering is being used by companies in the financials, healthcare
and networking sectors, among others.

Red Hat's middleware products and services would be well
complemented by the inclusion of the new technology, as it would
speed up the delivery of its integration products and services.
Moreover, the solutions provided by Red Hat ensure a cost-effective
business operation.

We believe that Red Hat is emerging as a significant player in
the middleware segment. Red Hat has an impressive product line up
and expects to invest heavily on the development of innovative
products.

Red Hat's expansion in the middleware segment makes sense
because around 40% of the top 30 deals of $1 million or more in the
last-reported quarter included a middleware component, while just 3
deals were middleware-exclusive deals.

Additionally, the company's offerings in the cloud-computing and
server virtualization segments are expected to be incrementally
beneficial in the long run.

However, we believe that increasing investment may hurt margins
in the short term. Moreover, sluggish IT spending and significant
foreign exchange volatility will keep the stock range bound.

At the same time, we don't expect competitive pressures to
alleviate given the financial prowess of rivals such as
IBM Corp.
(
IBM
),
Microsoft Corp.
(
MSFT
),
VMware Inc.
(
VMW
) and
Oracle Corp.
(
ORCL
).

We maintain our Neutral recommendation over the long term (6-12
months). Currently, Red Hat has a Zacks #3 Rank, which implies a
Hold rating in the short term.

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